In selecting the most appropriate portfolio of policies to deal with climate change, it is important to distinguish between the case of ‘certainty’, where the ultimate target is known from the outset, and a ‘probabilistic’ case, where there is uncertainty about the level of a ‘dangerous interference’ and about the costs of greenhouse gas abatement.

In the case of certainty, the choice of emissions pathway can be seen as a pure GHG budget problem, depending on a host of parameters (discounting, technical change, socio-economic inertia, carbon cycle and climate dynamics, to name the most critical) that shape its allocation across time. The IPCC Second and Third Assessment Reports demonstrated why this approach is an oversimplification and therefore misleading. Policymakers are not required to make once-and-for-all decisions, binding their successors over very long time horizons, and there will be ample opportunities for mid-course adjustments in the light of new information. The choice of short-term abatement rate (and adaptation strategies) involves balancing the economic risks of rapid abatement now and the reshaping of the capital stock that could later be proven unnecessary, against the corresponding risks of delay. Delay may entail more drastic adaptation measures and more rapid emissions reductions later to avoid serious damages, thus necessitating premature retirement of future capital stock or taking the risk of losing the option of reaching a certain target altogether (IPCC, 1996b, SPM).

The calculation of such short-term ‘optimal’ decisions in a cost-benefit framework assumes the existence of a metaphorical ‘benevolent planner’ mandated by cooperative stakeholders. The planner maximizes total welfare under given economic, technical and climate conditions, given subjective visions of climate risks and attitudes towards risks. A risk-taking society might choose to delay action and take the (small) risk of triggering significant and possibly irreversible abrupt change impacts over the long-term. If society is averse to risk – that is, interested in avoiding worst-case outcomes – it would prefer hedging behaviour, implying more intense and earlier mitigation efforts.

A significant amount of material has been produced since the SAR and the TAR to upgrade our understanding of the parameters influencing the decisions about the appropriate timing of climate action in a hedging perspective. We review these recent developments, starting with insights from a body of literature drawing on analytical models or compact IAMs. We then assess the findings from the literature for short-term sectoral emission and mitigation estimates from top-down economy-wide models.